Chapter 5 - Avoid Mutual Funds…Embrace Exchange-Traded Funds (Sneak Peak...)

What you don’t know about the Mutual Fund Industry

“Wall Street people learn nothing and forget everything.”  – Benjamin Graham, famous American investor

There are currently more mutual funds in existence in North America than there are stocks.  The industry is estimated to be worth upwards of $8 trillion.  In Canada, the mutual fund industry is said to be worth around 610 billion dollars (2006 estimate).  This represents over half of the country’s GDP.  It’s a huge market!  Moreover, Canada has the highest mutual fund related fees in the world.  In the United States the industry represents over fifty-five percent of its GDP.  Again, this is huge.  And as we all know, big industries go to great lengths to preserve their wealth and power (just look at the oil and tobacco industries).  Consequently, the mutual fund industry will pull out all the stops, usually at the investor’s expense, to remain very profitable.  It is a well-known fact that mutual fund managers act more as salespeople than anything else.  The mutual fund industry is a well-oiled marketing machine.  It is actually more a model of marketing success than an investment success.  They are obsessed with sales and, as a result, their managers are compensated according to their ability to sell funds rather than effectively manage them.  A significant part of their salaries is linked to their capacity to attract herds of investors to their funds.  A study by an American firm – Greenwich Associates– reveals this.  In 1999, the average salary for Canadian fund managers was $312,000.  And in 2003, despite the stock market tumble that had occurred between 2000 and 2002, the average salary actually rose to $426,000...//

© Dan Fournier, 2007, 2008